Inventory Turnover
Also called: stock turnover, inventory turnover ratio
What is Inventory Turnover?
Inventory turnover is how many times average stock is sold and replaced over a period. High turnover means capital is recycling quickly; low turnover means cash is sitting on shelves.
Why Inventory Turnover matters
Stock is cash in another form. A business with slow turnover can be profitable on paper while permanently short of money, because the profit is tied up in goods that have not sold.
Inventory Turnover formula
Inventory turnover = COGS ÷ Average stock at cost
Days of stock = 365 ÷ turnover.
How Inventory Turnover works in practice
Compute it by category, not for the whole shop. A blended figure hides the fast-moving lines carrying the slow ones, which is exactly the information a buying decision needs.
Worked example
₹48,00,000 of annual COGS against ₹6,00,000 average stock is a turnover of 8, or about 46 days of stock.
Frequently asked questions
It varies enormously — a bakery turns stock daily, a jeweller a few times a year. Compare to your own history and to your credit terms.